Abstract
We present a rationale for the delegation of regulatory functions in public transport to a partnership that rebalances social and commercial interests according to an agreed and predetermined objective function. This allows for the improvement of economic efficiency providing a constructive commitment to tariff and subsidy policies. Using a simple model, we determine the optimal corporate structure for such a partnership between the local government and any regulated monopoly. The government's strategic option of using its stake in the partnership to generate budget revenue from sale proceeds and/or dividends encourages the relevant authorities to increase the commercial attractiveness of the joint enterprise by setting appropriate tariffs. We show that such a strategic partnership can lead to improvements in welfare if the local cost of public funds is relatively high. These theoretical findings are then examined through the prism of suburban railway transport reform in Russia.
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